Gifts, Awards, Prizes and Incentives

Purpose and Scope

This policy governs all distributions of gifts, awards, prizes, and incentives (herein referred to as “benefits”) to all students, faculty, staff, and non-employees, ensuring compliance with IRS regulations, grant terms, and promoting responsible and allowable use of college funds, grant funds, and other sources. Benefits must align with the college's mission and purpose.

 

Definitions

Award: May recognize length of service, exceptional performance, special achievement, employee recognition, etc.

Gift*: Gifts are generally not taxable to the recipient, but a payment from the college to a student or employee would probably not be classified as a gift because of the relationship between the parties.

Prize: Recognizes performance as part of a judged competition (e.g. best design, highest score, academic achievement, etc. or winnings from a raffle/drawing.

Incentive: An item or payment provided to encourage participation in a program, survey, or other institutional activity.

De Minimis: For purposes of fringe benefits to employees, the IRS defines “de minimis” as benefits so small in value (usually interpreted as under $100) and infrequent that accounting for them would be unreasonable or impractical.

De Minimus Exception: Gift Cards and Gift Certificates are considered a “cash equivalent"** by the IRS and taxable to the employee with no de minimis exception. De minimis non-cash payments to nonemployees do not have to be reported by the college if they are under $2,000 in total for the calendar year.

• Employees - non-cash items of low value (under $100) provided occasionally may qualify and be excluded from wages.
• Students (non-employees) – While the IRS rules focus on employer-employee benefits, colleges generally apply the same standards to non-employee students.

 

*Under general principles of tax law, a gift is a transfer motivated by “detached or disinterested generosity;” or a transfer made “out of affection, respect, admiration, charity or like impulses.”

**A cash equivalent gift or award is any item which can be used to “purchase” merchandise or which can be easily converted to cash. Under IRS code, cash and cash equivalent fringe benefits (i.e. gift cards/certificates) constitute income to the recipient, no matter how small, and are taxable and never excludable as a de minimis benefit. For reporting, if the total is worth less than $2,000 in a calendar year, the college does not have to report the payments on Form 1099. Even though a 1099 is not issued, it is still considered taxable income to the recipient.

 

Tax and Reporting Considerations

Students (Employees or Non-Employees)

Student/employees: If a benefit is related to employment performed for the college (e.g., outstanding student worker in a department), generally the value of the benefit must be processed as supplemental wages via Payroll, with appropriate income taxes withheld and income included on the student/employee’s Form W-2. There is no de minimis exception when related to employment services. A student could be categorized as an employee if there is a payment in exchange for services, based on the nature of the work and the control of the college over the work, even if the student is not otherwise an employee.

Non-cash benefits under $100 are considered de minimis and not taxable. If benefits are provided regularly or on an ongoing basis, they are removed from de minimis treatment, become taxable, and therefore must be tracked.

However, non-cash de minimis fringe benefits are excluded from employee income. De minimis fringe benefits are those whose value is so small that accounting for them would be unreasonable or impractical, considering the frequency with which the employer provides it.

Examples of De Minimis Student Incentives:

• College-branded merchandise (e.g., sweatshirts, water bottles).
• Academic-related supplies (e.g., calculators, books).

 

Non-Student Employees

Students/non-employees: However, if the benefit is not related to services performed as an employee (e.g. academic achievement), it is still taxable income to the recipient. If non-employee benefits to one person equal $2,000 or more per year, it must be reported on Form 1099-MISC, but it is not subject to withholding.

Achievement Awards to students are taxable and reportable on Form 1099-MISC if they exceed $2,000 in a calendar year unless they qualify as scholarships*** and are directly applied toward tuition, required fees, books, supplies, and equipment.

Student recognition by College departments for academic or achievement-based competitions is considered a taxable prize by the IRS but not financial aid unless applied toward educational expenses. If prizes to a student exceed $2,000 in a calendar year, it should be reported on a 1099-MISC.

If the prize is won based on chance rather than merit (e.g. random drawings), it is always considered taxable income and may be subject to IRS reporting on form W-2G if the amount exceeds $2,000 and subject to withholding if the amount exceeds $5,000.

The student is responsible for any applicable taxes whether or not the college must report the payment.

Gift cards or cash equivalents of any amount are always taxable.

 

***For a scholarship to be considered tax-free by the IRS (Publication 970), it must meet the following criteria:

• The recipient must be a degree-seeking student.
• The student must attend a qualified educational institution.
• The scholarship must not exceed the student’s qualified education expenses (which differ from the total cost of attendance).
• The scholarship cannot be designated for non-qualified purposes.
• The scholarship cannot represent payment for work or services rendered.

 

Prohibited Uses

• Gifts, prizes, and incentives may not be used for personal benefit, political contributions, or purposes unrelated to college business.
• Cash gifts are prohibited except for approved payroll compensation.

 

Policy Procedures and Approvals

All calendar year benefits exceeding the threshold amounts outlined in this policy, individually or in the aggregate, and all cash equivalent gifts, (including gift cards regardless of amount), must be reported on the Gift Card/Certificate or Prize Reporting Form and submitted to Accounts Payable who will share with payroll if necessary.

 

Recommended Practices

The College wants supervisors to find meaningful ways to recognize faculty, staff, and student workers while also complying with IRS regulations. If you use non-cash de minimus awards/gifts to recognize employees, you will avoid the “red tape” of reporting taxable income. College faculty and staff are, therefore, encouraged to reward employees and student workers with tangible property benefits, rather than gift cards or gift certificates.

Taxable example: The department purchases a $20 Amazon gift card to recognize an employee. The department must submit a Gift Card/Certificate or Prize Reporting Form to Accounts Payable. The employee may owe taxes on the value of the card, diminishing its intended value.

Non-taxable example: The department purchases a $20 book from Amazon.com for the employee or provides College swag. No Gift Card/Certificate Reporting form to file.

For students, offering a scholarship equivalent to the prize amount may be non-taxable if used for tuition, books, or fees. As an example, Student A has done great work for a department all year long. To reward this performance, the department wants to express its appreciation to the student at the end of the academic year.

 

Change Log: 

• 02-23-2026  Approved by Executive Council
• 05-18-2026  Changes to Taxable example

 

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